Cosmos Machinery points to uncertain plastics sector in China

By: Steve Toloken

August 30, 2013

Uncertainty in China’s plastics industry made for a difficult first half for Cosmos Machinery Enterprises Ltd., with revenues and demand up, but rising manufacturing costs and problems in its molding division meant the firm was unable to take advantage and it posted higher losses.

The Hong Kong-based company also replaced its chief executive officer in early July, with Tang Yu, a senior executive in its processing division, replacing Wong Yiu Ming, who the company said will remain as an executive director and handle special projects. Tang is the son of Cosmos chairman Tang To.

Cosmos said turnover increased 16 percent in the first six months of 2013, to HK$1.15 billion (US$148.2 million). Sales in its core plastics machinery business were up 17 percent, to HK$526.9 million (US$67.9 million), with that unit posting a modest profit of HK$2.3 million ($296,000).

But ongoing challenges in its plastics molding and processing factories dragged down earnings. The processing unit saw revenues rise 10 percent to HK$167.7 million ($21.6 million), but it posted a loss of HK$10.8 million ($1.4 million).

“During the reporting period, turnovers of most of the group’s businesses still recorded increases when compared to the corresponding period last year,” Cosmos said. “However, because of the difficult business environment the group faced, its consolidated profit performance was unfavorable.”

Its injection molding factory for food packaging and cutlery in Zhuhai was representative.

“Sales turnover [in Zhuhai] during the reporting period slightly increased as compared with the same period last year, which was however more than offset by the increases in the price of plastic material as well as labor cost, resulting in a decline in profit,” the company told the Hong Kong Stock Exchange in an Aug. 28 filing.

Likewise, it said its molding factory in Dongguan, which specializes in household appliances and audio/visual products, also reported difficulties, and it said the operation was being restructured and upgraded.

On the machinery side, the company said it was introducing a new generation of its energy saving SeII series of injection molding machine in the third quarter, and was working on developing an all-electric machine, its Ge series, part of a strategy to focus on higher-end markets.

“Looking into the second half of 2013, the domestic and foreign macro-economic conditions of the machinery business shall remain perplexing,” it said. “The market demand for plastic… equipment may see an increasing risk of slowdown. It is anticipated that the high-end equipment market shall suffer lesser impact.”

It noted that “vicious competition” in the plastic injection machinery market was putting pressure on prices and hurting its profit margin.

In general, it said that the consumer demand in China’s could continue to be suffer in the 2nd half of the year, and said Chinese debt levels could hurt business expansion: “Hence, small and medium customers would face financing problems.”